The China Banking Regulatory Commission (CBRC) published the draft version of new real estate trust regulations on its website Monday for public consultation. The consultation period will last one month.

The draft proposes that trust companies will have to shoulder losses for investors that are directly caused by fraud or cheating in the promotion and selling of real estate trust products.

With around a 15 billion yuan (US$1.8 billion) volume of real estate trusts, China is badly in need of comprehensive regulation to prevent fraud in the sector.

Such products are gaining popularity among real estate developers, who have been restricted by the tightened supply of loans since last year as authorities pledged to cool the real estate market down to prevent a bubble forming.

But the growth in the sector has also exposed the need for better risk control and self-discipline to guarantee that investors are well protected, say experts.

The draft regulations define the scope of business and qualifications required for those undertaking real estate trusts, how the funds raised should be used and the liabilities of the participants.

Such products will have to have clear investment targets, strategies and risk control measures. They will also have to be kept in the custody of a commercial bank, who will report to the CBRC on misuse of funds or any suspected irregularities.

Money raised from real estate trust projects cannot be used in non-real estate sectors, for overseas real estate or for other unrelated purposes and the entrusted assets must be clearly ring fenced.

Apart from real estate products, China's trust firms, in strong recovery after years of cleaning up the market since the mid-90s, are facing a slew of new rules setting new business standards.

The CBRC is also to release rules on information disclosure for trust firms. These would enable investors to sue for compensation if they suffer losses in investment due to trust firms' negligence.

(China Daily October 19, 2004)